EY Cyprus: Cyprus is a real estate market to watch

The Cypriot real estate industry's growth in the face of soaring prices is very encouraging, with foreign buyers playing a substantial role in driving this expansion, according to EY Cyprus’ recently published report Industry Semi-Annual Update: Cyprus Real Estate.

While uncertainties linger regarding pricing stability, fluctuating interest rates, and the evolving lending environment, the island’s real estate sector has consistently demonstrated resilience, EY Cyprus said. This unique situation positions Cyprus as a market to watch, presenting opportunities for investors and stakeholders to navigate and capitalise on its distinct dynamics, it added.

The report presents the most recent sector developments in Europe and Cyprus. It also consolidates and presents insights from interviewing key sector stakeholders on the driving factors and challenges expected to influence the market in the foreseeable future.

The local market trends

Among other, the report mentions the local real estate sector trends, dividing them into four categories: Residential, Offices, Retail and Industrial.

Regarding residential properties, EY Cyprus is expecting stable or marginally less local interest to acquire own assets in Cyprus, due to rising construction costs and interest rates, and reduced VAT sponsorship. Apartments are expected to be less affected due to the size of investment required.

Renting is becoming more popular on the island, what with the high cost-of-living, while foreign nationals are expected to continue purchasing homes in coastal areas for various purposes.

Finally, EY said the local residential market is expected to slowly catch up with ESG trends, with a need to readjust to attract further demand for both new build and older stock upgrades.

When it comes to office space, the report said the strong demand in specific cities is expected to continue, underpinned by a growing headquartering/business relocation trend (especially following the war in Ukraine).

EU directives for energy efficiency will be impacting the local market, it also said. A lot of old stock will need to be upgraded. “Having said this, in contrast to the EU, the supply of newly built assets in this category in Cyprus is relatively high.”

Commercial real estate in Cyprus is expected to follow European trends, as online sales become more and more popular. However, this effect is likely to be more limited locally, where many popular online shopping platforms do not deliver.

The cost-of-living crisis, on the other hand, is expected to continue adversely impacting the retail sector, with vacancy rates increasing.

Industry-wise, Cyprus is still seriously lacking compared with its European counterparts, with EY Cyprus saying the island has not evolved into a major logistics hub. A number of industrial assets have ended up in real estate owned (REO) portfolios and marketed accordingly.

On the other hand, the steep drops in entry yields experienced in Europe were not replicated locally, so no major shifts are expected. As with offices, ESG practices are likely to impact the retail sector in the short term.

Read the full report here